ENTRY BARRIERS IN LIQUOR INDUSTRYWhen a new firm enters into an industry it can affect all of the firms that are currently in that industry. “new entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Prices can be bid down or incumbents cost inflated as a result, reducing profitability.”24Therefore as new firms enter into an industry the entire industry’s potential for sustained profits is reduced due to the increased amount of competition in that industry. Some factors help reduce the threat of entry as they act as barriers that prevent new firms from entering into an industry. These factors include economies of scale, product differentiation, capital requirements, access to distribution channels, and government regulations. When these factors reduce the threat of entry, the profit potential for the industry increases. Economies of Scale. Economies of scale is defined as the “declines in unit costs of a product as the absolute volume per period increase” Therefore the greater quantity of a product that is produced the lower the cost of each will be to the producer. This creates an advantage for a high volume producer like those seen in the brewing industry. Economies of scale in the brewing industry also exist in areas other than in production and these include purchasing, distribution, and advertising. For example, national brewers achieve economies of scale in advertising through bulk media purchases and umbrella brand marketing. Local-craft brewers spend more than twice that spent by large brewers on marketing and advertising per barrel.25 One company in particular, which is Anheuser-Busch, has done an extremely good job in exploiting the economies of scale that are present in the brewing industry. “Anheuser-Busch has been able to leverage its 45 percent U.S. market share into 75 percent of the industry’s operating profits through significant economies of scale in the areas of raw material procurement,...

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...Barriers to market entry include a number of different factors that restrict the ability of new competitors to enter and begin operating in a given industry. For example, an industry may require new entrants to make large investments in capital equipment, or existing firms may have earned strong customer loyalties that may be difficult for new entrants to overcome. The ease of entry into an industry in just one aspect of an industry analysis; the others include the power held by suppliers and buyers, the existing competitors and the nature of competition, and the degree to which similar products or services can act as substitutes for those provided by the industry. It is important for small business owners to understand all of these critical industry factors in order to compete effectively and make good strategic decisions.
"Understanding your industry and anticipating its future trends and directions gives you the knowledge you need to react and control your portion of that industry," Kenneth J. Cook explained in his book The AMA Complete Guide to Strategic Planning for Small Business. "Since both you and your competitors are in the same industry, the key is in finding the differing abilities between you and the competition in dealing with the industry forces that impact you. If you can...

...Explain how barriers to entry may affect market structure
In some market it is easier to enter than in others due to the barriers to enter. Those barriers determine how many producers there will be in a market and therefore its structure. If there are lot of barriers to entry there will be market structure such as monopoly or oligopoly; if there are no barriers to entry, or just few of them, there will be market structure such as perfect competition or monopolistic competition.
When the barriers to entry are lots and strong, another producer will not be able to enter into the market because the costs and difficulties are too high, we will find a monopoly. In this type of market structure there are different kind of barriers to entry.
Firstly, there are legal barriers where the government can create a monopoly because of its law system. For example, in UK only pharmacy can give prescription for drugs.
Secondly, there are resource barriers where a monopolistic firm is able to buy all the resource available and therefore others firms won’t have any possibility to set up. For example, in Italy there is only one electric company that bought all the resources available and Italian consumers have just one supplier of electricity.
Thirdly, a monopoly can practise an unfair...

...1. Definitions.
Barriers to entry are economic, procedural, regulatory, or technological factors that obstruct or restrict entry of new firms into an industry or market.
Barriers to exit are perceived or real impediments that keep a firm from quitting uncompetitive markets or from discontinuing a low-profit product.
2. Types of barriers:
Innocent barriers are those that are part and parcel of the nature of the industry and have not been specially erected by the incumbents to hinder the entry of other firms.
Strategic barriers are strategic entry deterrents that stop other firms from entering the market.
3. Innocent barriers.
Cost advantages. The incumbent firm may have exploited the economies of scale that enables it to produce at a lower cost than any would-be new entrant which is passed over onto consumers through lower prices.
Sunk costs. Some industries have very high start-up costs or a high ratio of fixed to variable costs that might be unrecoverable if firms leave the industry. This acts as a disincentive to enter the industry.
Cost advantages independent of scale. Proprietary technology, know-how, favourable geographic locations, learning curve cost advantages.
4. Strategic barriers.
Patents. They are government enforced intellectual...

...How relevant do you think the Five-Forces Framework map is to identify environmental forces affecting the global pharmaceutical industry? Do these forces differ by industry sector, and where would you place the different sectors in the industry life-cycle?
Porter’s five forces help identify their attractiveness in the industry in terms of the five competitive forces which are: the threat to entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between the competitors. Where the forces are high, industries are not attractive to compete in. There will be too much competition and pressure to allow reasonable profits. In context to the global pharmaceutical industry the five forces framework map is very relevant in identifying the environmental forces affecting the group of firms producing the same product.
The threat of entry: Barriers to entry are the factors that need to be overcome by the new entrance if they are to compete in the industry.
The threat of substitutes: Substitutes are products or services that offer similar benefits to industries products or services by different process. Substitute can reduce demand for a particular product as customers switch to alternatives. The simple risk of substitution puts a cap on the prices that can be charged...

...Chapter 2
Chapter 2
Strategy Analysis
2. What are the critical drivers of industry profitability?
Rivalry Among Existing Firms. The greater the degree of competition among firms in an industry, the lower average profitability is likely to be. The factors that influence existing firm rivalry are industry growth rate, concentration and balance of competitors, degree of differentiation and switching costs, scale/learning economies and the ratio of fixed to variable costs, and excess capacity and exit barriers.
Threat of New Entrants. The threat of new entry can force firms to set prices to keep industry profits low. The threat of new entry can be mitigated by economies of scale, first mover advantages to incumbents, greater access to channels of distribution and existing customer relationships, and legal barriers to entry.
Threat of Substitute Products. The threat of substitute products can force firms to set lower prices, reducing industry profitability. The importance of substitutes will depend on the price sensitivity of buyers and the degree of substitutability among the products.
Bargaining Power of Buyers. The greater the bargaining power of buyers, the lower the industry’s profitability. Bargaining power of buyers will be determined by the buyers’ price sensitivity and their importance to the individual firm....

...Qns 6
Entry and Exit will determine the extent of competition in an industry. Apply to the airline, pharmaceutical or supermarket businesses. Using the industry of your choice, how can this company deter entry?
Entry is the beginning of production and sales by a new firm in a market, and exit occurs when a firm ceases to produce in a firms.
The existence of high start-up costs or other obstacles that prevent new competitors from easily enter an industry or area of business. Barriers to entry benefit existing companies already operating in an industry because they protect an established company's revenues and profits from being whittled away by new competitors.
Structural barriers to entry exist; when the incumbent has cost advantages or marketing advantages over the entrants and incumbent are protected by favorable government policy and regulation.
Barriers to entry protect incumbent firms and restrict competition in a market; they can erect strategic barriers by expanding capacity and/or resorting to limit pricing and predatory pricing. The existence of monopoly and market power is often aided by barriers to entry.
The three main types of structural barriers to entry are
1. Control of essential resources...

...1
Q. Using suitable examples define barriers to entry. Explain how barriers to entry affect our firm’s profits. Before a firm can compete in a market, it has to be able to enter it. Many markets have at least some impediments that make it more difficult for a firm to enter a market. A debate over how to define the term “barriers to entry” began decades ago, however, and it has yet to be won. Some scholars have argued, for example, that an obstacle is not an entrybarrier if incumbent firms faced it when they entered the market. Others contend that an entrybarrier is anything that hinders entry and has the effect of reducing or limiting competition. A number of other definitions have been proposed, but none of them has emerged as a clear favourite. Because the debate remains unsettled but the various definitions continue to be used as analytical tools, the possibility of confusion – and therefore of flawed competition policy – has lingered on for many years. The economist Joseph Stigler defined an entrybarrier as "A cost of producing (at some or every rate of output) which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry". Barriers to entry are obstacles on the way of potential...

...Market entry and exit constitute major business strategy decisions reflecting a strategic initiative on the part of a firm to develop, or reshape, its product or market positioning
Barriers to entry are obstacles in the way of firms attempting to enter a particular market, which may operate to give established firms particular advantage over investment. They are factors that allow incumbent firms to earn positive economic profits, while making it unprofitable for new comers to enter the industry. Barriers to entry may be structural or strategic. Structural entrybarriers result when the incumbent has natural costs or marketing advantages or benefits from favorable regulations. Strategic entrybarriers result when the incumbent aggressively deters entry.
The mobile phone industry has been continuously growing rapidly, with the sales of mobile phone hardware increasing more than 20 percent annually. Originally, cellular phones were just that –telephones. Today, with the third generation (3G) technology, mobile phones have evolved to more than just a normal portable, wireless telephone. These gadgets have since gained the title of ‘Smartphone’. The capabilities of a smartphone depend on its operating software (OS) or its software and this has captured the attention of the giant in the software manufacturing...